Tesla Motors Inc 2017 Q4 Financial Results...
"Tesla Fourth Quarter & Full Year 2017 Update" (Text from Press Release)
Record Model S and Model X deliveries in Q4 2017
Cash balance of $3.4B entering Q1 2018
2017 revenue of $11.8B, up 55% y-o-y from organic growth
2018 revenue growth expected to significantly exceed 2017 growth
Continuing to target Model 3 production rate of 5,000/wk by Q2 end
2017 was an important year in Tesla’s history. Among other things, we started delivering Model 3 to customers, unveiled the Semi and the next-generation Roadster, installed the world’s largest battery in Australia, and had record vehicle production and deliveries of Model S and Model X. We also learned many lessons from the slower than planned production ramp of Model 3. All of this sets the stage for 2018 to be a transformative year for us.
At some point in 2018, we expect to begin generating positive quarterly operating income on a sustained basis. With the planned ramp of both Model 3 and our energy storage products, our rate of revenue growth this year is poised to significantly exceed last year’s growth rate. The launch of Model 3 is what Tesla had been building towards from day one. We incorporated all the learnings from the development and production of Roadster, Model S, and Model X to create the world’s first mass market electric vehicle that is priced on par with its gasoline-powered equivalents – even without incentives. Now we are ramping up production significantly, and as we look ahead in 2018, we are on the cusp of a step change in the world’s transition to sustainability.
ADVANCING SUSTAINABLE TRANSPORT
We continue to target weekly Model 3 production rates of 2,500 by the end of Q1 and 5,000 by the end of Q2. It is important to note that while these are the levels we are focused on hitting and we have plans in place to achieve them, our prior experience on the Model 3 ramp has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time. What we can say with confidence is that we are taking many actions to systematically address bottlenecks and add capacity in places like the battery module line where we have experienced constraints, and these actions should result in our production rate significantly increasing during the rest of Q1 and through Q2.
Our goal is to become the best manufacturer in the automotive industry, and having cutting edge robotic expertise in-house is at the core of that goal. Our recent acquisitions of advanced automation companies have added to our talent base and are helping us increase Model 3 production rates more effectively. We don’t want to simply replicate what we have built previously while designing additional capacity. We want to continuously push the boundaries of mass manufacturing.
As we shared previously, in order to incorporate our learnings and be capital efficient, we intend to start adding enough capacity to get to a 10,000 unit weekly rate for Model 3 once we have first hit the 5,000 per week milestone.
Despite the delays that we experienced in our production ramp, Model 3 net reservations remained stable in Q4. In recent weeks, they have continued to grow as Model 3 has arrived in select Tesla stores and received numerous positive reviews, including Automobile Magazine’s 2018 Design of the Year award. We want to thank both our Model 3 suppliers and our customers, who have continued to be such great partners and advocates, while patiently waiting as the ramp continues to accelerate.
In Q4, we delivered 28,425 Model S and Model X vehicles and 1,542 Model 3 vehicles, totaling 29,967 deliveries. Combined Model S and Model X deliveries in Q4 grew 10% globally compared to our prior record in Q3, and they grew 28% compared to Q4 2016. As we indicated heading into Q4, production of Model S and Model X during the quarter was limited to 22,137 vehicles due to reallocation of some of the manufacturing resources to Model 3 production. This enabled us to reduce our finished-goods inventory to the lowest level in about 18 months.
Combined Model S and Model X net orders in Q4 were just shy of Q3’s all-time high. Importantly, combined orders for Model S and Model X grew significantly in 2017 compared to 2016. There had initially been concerns about whether Model 3 would cannibalize Model S and Model X. It seems the opposite is true. In stores where Model 3 is on display, customer foot traffic has increased considerably and orders for Model S and Model X have in fact increased. There has been an even bigger increase in solar and Powerwall sales.
The upcoming autonomous coast-to-coast drive will showcase a major leap forward for our self-driving technology. Additionally, an extensive overhaul of the underlying architecture of our software has now been completed, which has enabled a step-change improvement in the collection and analysis of data and fundamentally enhanced its machine learning capabilities. Our neural net, which expands as our customer fleet grows, is able to collect and analyze more high-quality data than ever before, enabling us to rollout a series of new Autopilot features in 2018 and beyond.
During Q4, we opened 12 new store and service locations resulting in 330 total locations worldwide at the end of the year. Service capacity more than doubled in 2017, partially due to new locations, but also through a 50% increase in productivity of existing service locations, as well as the significant expansion of our Mobile Service fleet, which now has 230 vehicles. We strive to create the best car ownership experience on the planet, and a big part of that is through not requiring customers to come in to service their vehicle. In North America alone, Mobile Service is now completing 30% of all service jobs, allowing those customers to never have to leave their home or office to get their cars serviced. Not surprisingly, Mobile Service has achieved customer satisfaction that averages 98%. In addition, the cost of servicing with our Mobile Service fleet is significantly lower than from our service centers. It now covers all of North America and provides a level of convenience and a speed for scaling that is unique and unprecedented in the industry. In 2018, we will continue to increase our service capacity with the goal of always remaining ahead of the Model 3 ramp.
Our Supercharger network has seen the most significant growth yet. In 2017, 338 new locations opened for a total of 1,128 Supercharger stations globally. Between Supercharger and Destination Charging, we increased capacity by over 90%. In preparation for Model 3, we opened several large Supercharger stations along our most popular corridors, including between Los Angeles and San Francisco and between Los Angeles and Las Vegas, both of which have a customer lounge, a café, a display of our energy products and 40 charging stalls. With continued emphasis on convenient, reliable, and ubiquitous charging, 2018 will be another big year for Tesla charging infrastructure.
The unveiling of Tesla Semi on November 16 launched Tesla into a new product category that will have a transformative impact due to a total cost of ownership that is superior to diesel trucks. Tesla Semi combines a real-world range of up to 500 miles with unprecedented performance while pulling a standard payload. Its distinctive torque enables smooth acceleration to highway speed even when fully loaded with cargo. Moreover, it has been designed to dramatically improve safety not only for the driver and cargo, but also for pedestrians and other cars on the road.
Tesla will be the first Semi customer. We plan to use the Tesla Semi for our own logistics by transporting Model 3 components from Gigafactory 1 to Fremont. Additionally, our initial fleet customers who placed reservations for the Tesla Semi have been helping us develop the best possible truck.
Also, after developing it in stealth with a very small team, we were thrilled to surprise everyone with the next-generation Roadster. Roadster was at the genesis of Tesla, a car that proved electric vehicles can be fast, exciting and here to stay. The new Roadster takes this concept to the next level. With 0-60 mph acceleration of 1.9 seconds and maximum speed of more than 250 mph, it will be the fastest car in the world. When that performance is combined with its 620 miles (1,000 km) of range, this supercar puts to rest any debate about the limitations of electric vehicles.
ADVANCING SUSTAINABLE ENERGY
2018 will see major growth in Tesla energy storage deployments, as the production ramp of our storage products is just as steep as with Model 3. This year, we aim to deploy at least three times the storage capacity we deployed in 2017.
On December 1, 2017, installation of the largest battery in the world was completed ahead of schedule in South Australia. This project is already generating substantial benefit by meeting high summer demand when supply is limited and by instantaneously responding to unplanned interruptions or frequency drops in the grid. Due to the success of this project, we're seeing an increase in demand for Powerpack, our commercial energy storage product. With more electric utilities and governments around the world recognizing the reliability, environmental, and economic benefits of this product, it’s clear that there is a huge opportunity for us in large scale energy storage.
Powerwall demand for home energy storage remains exceptionally high, with orders consistently above production levels. We are increasingly promoting our energy products in Tesla stores and in non-Tesla retail locations. There is a significant cross-selling potential between Powerwall and our solar products, as evidenced by the fact that a vast majority of the customers who have ordered Solar Roof have also ordered at least one Powerwall.
In Q4, we deployed 143 MWh of energy storage products, growing 45% from Q4 2016. Deployment of 129 MWh of energy storage in South Australia will be recognized in Q1 2018 based on commercial transfer of the site to the customer.
We also deployed 87 MW of energy generation systems in Q4, which is 20% less than Q3 2017. Solar MW deployed declined as volumes continue to be impacted by our decision to close certain sales channels earlier this year and to focus on projects with better margins. In addition, solar deployments were affected by the short supply of Powerwalls for customers who wanted solar plus Powerwall in their house. While volumes may continue to be impacted by these factors over the near-term, we expect growth to resume later this year.
We continue to ramp energy sales in Tesla retail stores and are expanding our presence in partner locations. The mix of our residential solar sales continues to shift towards cash and loan as compared to leasing, reaching 54% of total residential solar sales in Q4, up from 25% in Q4 2016. This has contributed to improved cash performance of this business.
Initial production of Solar Roof at the Gigafactory 2 in Buffalo started in Q4, and we are ahead of schedule with the hiring targets we’ve agreed to with the state of New York. As Solar Roof is truly the first-of-its-kind and there is significant complexity in both its manufacturing and installation, we are deliberately ramping production at a gradual pace. When fully scaled, Gigafactory 2 will be able to produce enough solar cells to add more than 150,000 new residential solar installations every year. As we ramp production, a portion of the output will be dedicated for Solar Roof tiles with the balance used in our proprietary high-efficiency retrofit solar panels. With demand outpacing production, we expect our backlog to remain in excess of one year for the next several quarters.
Q4 2017 RESULTS Revenue & Gross Margin
[See Table]
Automotive revenue in Q4 increased by 36% over Q4 2016, mainly due to 35% growth in vehicle deliveries. For 2017, Automotive revenue was up 52% from 2016. ZEV credit sales in Q4 were $179 million as compared to $20 million in Q4 2016.
Approximately 23% of Q4 deliveries were subject to lease accounting, which was slightly higher than in Q3. Last week, we closed a $546 million asset backed securitization (ABS) of our Model S and X lease portfolio, which was our first such offering. This transaction and future ones like it will free up significant leasing capacity for long-term growth.
GAAP Automotive gross margin improved slightly compared to Q3 to 18.9%. Non-GAAP Automotive gross margin declined to 13.8% in Q4, which was below our expectations. This is more than fully explained by the slower than expected ramp of Model 3. Since Model 3 production was in the early stages of the ramp, allocation of full operating costs and depreciation made its gross margin negative. We are expecting a negative Model 3 gross margin in Q1, while generating positive operating cash flows.
Model S and Model X gross margin in Q4 declined very slightly compared to Q3. This was primarily due to significant reserves booked for fixed assets that are no longer in service. We expect Model S and Model X gross margins to increase in 2018 with improved trim mix and option content, lower cost of acquisition and lower manufacturing costs.
Three Months Ended December 31, September 30, December 31,
[See Table]
Energy generation and storage revenue in Q4 decreased by 6% compared to Q3. This was mainly driven by seasonal decline in solar deployment and by our continued focus on more profitable, cash sales.
GAAP gross margin in Q4 declined significantly as compared to Q3, due largely to several one-time factors and a higher mix of storage products. Q4 gross margin was impacted by the typical seasonal decline in solar energy production and correspondingly lower lease revenue in the winter months. We also booked one-time air freight costs for the South Australian battery project and took write-downs related to legacy commercial & industrial projects that we had committed to prior to the acquisition of SolarCity.
We expect gross margin to improve significantly in 2018 from higher operational and manufacturing cost efficiencies as well as deployment of higher-quality commercial projects.
Other Highlights
Service and Other revenue decreased by 5% compared to Q3 but increased by 81% compared to Q4 2016. Used car sales was the main driver of this year-over-year growth.
Service and Other gross loss increased to $89 million due to the significant growth of our service network in Q4 that has not been fully utilized yet as the Model 3 production ramp works to catch up, reserves for settlements with former customers of Grohmann and a one-time warranty true-up for used car sales. Gross margin on used cars sales was close to breakeven.
Operating expenses increased by 5% sequentially to a total of $1.04 billion in spite of significant revenue growth. We continue to focus on keeping tight control over operating expenses even as we ramp production.
Basic shares outstanding at the end of Q4 were approximately 168 million.
Cash Flow and Liquidity
[See Table]
Cash flow from operating activities reached $510 million in Q4, achieving a new quarterly record. This was achieved mainly by improved collection of receivables, inventory reduction of finished vehicles, improved working capital from the ramp of Model 3, and growth in customer deposits. Cash flow from operating activities in 2017 was close to breakeven.
The definition of operating cash flow includes cash outflow consumed by vehicle leasing. In order to show our cash flow from operations before leasing activities, proceeds from collateralized lease borrowing need to be added back. When that is done, our operating cash flow was $605 million in Q4. Additional $149 million of net funding was received in Q4 through our vehicle lease warehouse line and tax equity fund to help our cash flows.
Capital expenditures reached $787 million in Q4. The majority was attributable to Model 3 and Gigafactory 1 production capacity increases. We are continuing to proactively manage capex spending. Additionally, some capex payments for Model 3 have been deferred to Q1.
OUTLOOK
2018 will be a transformative year for Tesla, with a high level of operational scaling. As we ramp production of both Model 3 and our energy products while keeping tight control of operating expenses, our quarterly operating income should turn sustainably positive at some point in 2018.
We expect Model S and Model X deliveries to be approximately 100,000 in total, constrained by the supply of cells with the old 18650 form factor. As our sales network continues to expand to new markets in 2018, we believe orders should continue to grow. With demand outpacing production, we plan to optimize the options mix in order to maximize gross margin. As stated above, we continue to target a weekly Model 3 production rate of 2,500 by the end of Q1 and 5,000 by the end of Q2. Also, we are focused on achieving our target of 25% gross margin for Model 3 after our production stabilizes at 5,000 cars per week.
We expect energy storage products to experience significant growth, with our aim to at least triple our sales this year. We expect energy generation and storage gross margin to improve significantly in 2018 as we enter the year with a backlog of higher-margin commercial solar projects and a more profitable energy storage business due to manufacturing efficiencies from scaling.
Service and Other gross margin should improve in each subsequent quarter in 2018. This will be achieved mainly through improved service productivity via Mobile Service and better remote diagnostics for Model 3. Diagnostics architecture has been substantially redesigned for Model 3 in order to reduce physical service visits by more than 50%. Additionally, Superchargers will start generating revenue in 2018 with pay per use charging primarily by Model 3 customers.
Capital expenditures in 2018 are projected to be slightly more than 2017. The majority of the spending will be to support increases in production capacity at Gigafactory 1 and Fremont, and for building stores, service centers, and Superchargers.
This year, we are starting a new chapter of our journey. Hundreds of thousands of people will switch to our EVs and many others will turn their houses into near self-sufficient energy generators. This is the year when we believe we can achieve true cost parity - producing a premium EV like the Model 3 will be no more expensive than producing an ICE vehicle, something that many believe is not yet possible. We’ll continue to work as hard as we can to bring sustainable energy generation, storage and consumption into the mainstream.
Elon Musk, Chairman & CEO Deepak Ahuja, Chief Financial Officer
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...see full document below, including Financial Statements...
but maybe again, like many times before , way too soon ....
(...and competition is increasing, e.g. Audi already taking orders...)
Unless you are talking about Elon Musk's (and some Tesla fanboys) ego, this is a different story. 
